New Initiative to Reduce Time-to-Market for Carbon Market Projects in Southern Africa

Gaborone (Botswana), 17 August 2012 - The United Nations Environment Programme (UNEP) today unveiled a new standardized baseline* for the region's electric power grid - a major step forward in efforts to boost access to climate-friendly investment in Africa that will reduce, by an estimated six months, the time it takes for carbon market projects to reach the market. The new emission factor, which encompasses all grid-connected utilities operating within the Southern African Power Pool (SAPP), would serve as a ready-made benchmark against which the Greenhouse Gas (GHG) impact of future sectoral investments in the region can be measured.

Adoption of the new standardized baseline will enable renewable energy and other climate-friendly projects within SADC to be brought to the carbon market faster than previously possible. This is because a new baseline and harmonized approach would effectively eliminate some of the most challenging steps in the project cycle, thus streamlining the complex design, approval, and auditing processes required by projects to sell UN-regulated carbon credits.

Glenn Hodes of UNEP's Risoe Center, which leads the organization's efforts in carbon finance and activities related to the CDM, said having such a baseline would make future efforts to boost clean power investments in SADC countries more efficient.

Until now, some Southern African countries had little or no participation in the CDM, despite significant potential. Among the factors behind the slow uptake was the lack of a regional GHG emission factor for the power grid.

"Previous rules and methodologies didn't particularly match the local context, leaving many countries with a low emission baseline. This new development enables more projects currently under development, including those utilizing hydropower, wind and solar resources, to increase their supplemental revenues from carbon credit sales," Hodes said.

"Domestic hydropower generation and other inter-country power transfers were previously unviable, as they would have produced too few carbon credits. But as the region has a fully interconnected electric power grid-the SAPP-the new regional benchmark is not only appropriate, but also more beneficial. Pre-ratification of the new figure by each country through its CDM authority will further streamline African access to carbon funding," he added.

The move was initiated in a joint petition, filed by ten SADC member states, to create a common baseline for the region's electric power sector under the CDM. Today's submission to the Secretariat of the UN Framework Convention on Climate Change (UNFCCC) caps more than a year's worth of research and consultations with energy and climate actors to quantify, validate, and pre-ratify a unified benchmark for the sub-regional power grid.

"Harmonized regional approaches such as this can facilitate a more rational approach to financing capacity additions to the grid that also take climate change into account," comments Engineer Joao Caholo, Deputy Executive Secretary of SADC. "They can support African governments to gain a bigger slice of global investment into renewable energy and climate-related finance. We are proud that southern Africa could play a pioneering role in this."

Cooperation in the generation, trade, and efficient use of electricity offers opportunities to both improve energy security and create regional markets. These objectives have been articulated by the recent meeting of the African Energy Ministers in Maseru, Lesotho.

To meet the continent's growing energy demands, the power sector in Africa needs to install an estimated 7,000 megawatts (MW) of new generation capacity each year. A recent UNEP report to mark the UN 2012 International Year of Sustainable Energy for All argues that much of Africa's future energy needs can come from Africa's wealth of untapped, domestic renewable resources. For example, Mauritania's wind energy potential is almost four times its annual energy need, while Sudan's is equivalent to 90 per cent of its annual energy needs.

Dr. Lawrence Musaba, SAPP Coordinating Center Manager adds, "We endorsed this initiative from the beginning, as the SADC region has had no reference point for some time. We now have a regional factor that can be used to the advantage of the region in getting carbon certificates for CDM projects that we intend to register. The SAPP has approved the calculations and is in support of the process to adopt them for wider regional use."

The development of the standardized baseline was championed by UNEP Risoe and funded through the African Carbon Asset Development (ACAD) Facility, a regional initiative supported by Germany's International Climate Initiative.

Financial and technical support by ACAD to the SAPP Secretariat has allowed it to calculate the new grid factor, with assistance from consultancy GFA-Envest. The calculations follow a combined margin methodology that is standard procedure for the CDM. They were then validated by Carbon Check Pty, the only UN-accredited auditor for CDM projects headquartered in Africa.

Grant Little, Business Development Manager in Africa for DNV Kema, a leading global carbon auditor, said, "Once this regional grid emission factor has been approved, it should assist project developers to expedite the validation of CDM projects in the region. Our experience has been that baseline justification often raised a need for additional clarification among projects in the region in the past."

"In a positive development of reducing both the cost and time of obtaining carbon credits, a standard of calculating emission reductions based on the power grid structure has been developed," said Harmke Immink, CDM Association of Southern Africa Board Member. "The great thing is that this tool could be used for any project that improves energy efficiency or generates renewable energy which is linked to the power pool (SAPP)."

* Standardized baselines aim to streamline and simplify the complex design, approval and auditing processes that are required by project proponents to sell carbon credits under the UN's Clean Development Mechanism (CDM). The CDM allows eligible projects to sell certified emission reduction credits, which are used by firms and industrialized countries toward meeting targets under Kyoto and domestic pollution laws. Standardized baselines allow for calculating the typical emissions for an entire sector, rather than for individual projects.

The UNEP Risoe Centre is leading UNEP activities related to carbon finance and the CDM. URC has played a pivotal role in facilitating the participation of developing countries in the emerging carbon market, focusing on support for capacity building, and piloting new approaches. It conducts analysis to strengthen emerging sectors in CDM, and implements country-level and regional activities aimed at enhancing a more equitable regional distribution of carbon project activities.

The Southern African Power Pool (SAPP) was created with the primary aim to provide reliable and economical electricity supply to the consumers of each of the SAPP members, consistent with the reasonable utilization of natural resources and the effect on the environment. The countries that are physically connected in the SAPP are (excluding countries that are part of SAPP, but not connected) (connected utilities indicated in brackets):

Namibia (NamPower)

South Africa (Eskom and non-Eskom)

Zimbabwe (ZESA)

Zambia (ZESCO)

Mozambique (EDM)

Botswana (BPC)

Democratic Republic of Congo (SNEL)

Lesotho (LEC)

Swaziland (SEB)

About the ACAD Facility:

ACAD is Africa's first project development support facility dedicated to increasing carbon project deal-flow. Its approach to market and capacity development is innovative because it is practical, investment-project specific, flexible, as well as demand-driven. Examples of ACAD project successes include the first large-scale wind power project in Africa to be registered under the CDM and the first registered CDM programme of activity involving kerosene-replacing efficient lamps in Rwanda. ACAD is generously funded by the International Climate Change Initiative (ICI) of the German Federal Ministry for the Environment (BMU). More information is available at: www.acadfacility.org

About the Southern African Development Community (SADC):

Member States:

Angola Lesotho Malawi Namibia Swaziland

Botswana Madagascar Mauritius Seychelles United Republic of Tanzania

Democratic Republic of Congo Mozambique South Africa Zambia Zimbabwe

The Southern African Development Community (SADC)'s vision is that of a common future within a regional community that will ensure economic wellbeing, improvement of living standards and quality of life, freedom and social justice and peace and security for the people of southern Africa. This shared vision is anchored on the common values and principles and the historical and cultural affinities that exist between the people of southern Africa.

The SADC mission is to promote sustainable and equitable economic growth and socio-economic development through efficient productive systems, deeper co-operation and integration, good governance, and durable peace and security, so that the region emerges as a competitive and effective player in international relations and the world economy.